Thursday, January 25, 2007

Convicted Con Artist Shows System Flaws That May Result In Home Thefts

Sitting in a Federal transfer detention center in Leavenworth, Kansas, a convicted mortgage fraud scammer "spent more than two hours explaining to a reporter how to find victims, steal from homeowners and lenders, and hide the crimes. Then he offered advice on how to avoid being scammed."

For the whole story, reported by USA Today at usatoday.com, see:

Convicted con artist shows how system flaws could allow him to steal your home

West Palm Beach Attorney Representing "A Dozen" Foreclosure Rescue Victims

Today's South Florida Sun-Sentinel reports of home equity theft cases involving foreclosure rescue arrangements that two South Florida homeowners found themselves in and are fighting back.

Reportedly, the attorney for one of the homeowners, West Palm Beach-area attorney James Bonfiglio, is handling a dozen such cases on behalf of financially strapped homeowners, including three against one South Florida real estate operator.

I found the following interesting quote in the story:

  • "What's more, such [foreclosure rescue] cases are difficult to win in Florida, real estate lawyers say, because judges in the state tend to enforce what's written in a contract."

While I'm sure that there may be real estate lawyers who "say" this, readers of this blog and savvy consumer protection and real estate attorneys know that, when invoking the "equitable mortgage" doctrine in order to treat a foreclosure rescue arrangement simply as a secured (& possibly usurious) loan, courts are not limited to reviewing the written documents. They are to listen to the testimony of the parties and look to all of the surrounding facts and circumstances when determining whether a deed transfer with a simultaneous lease back / buy back arrangement is an equitable mortgage.

(Florida has codified the equitable mortgage doctrine at Chapter 697.01 of the Florida Statutes.)

Further, in a prior blog post, I referred to the recent Florida appellate court case, Guest v. Claycomb, 932 So. 2d 567 (Fla. App. Ct. 5th Dist., 2006), which reminds us that Florida courts (and I'm sure non-Florida courts as well) have long held that when someone brings legal action in a case involving a written contract and specifically requests some form of "equitable relief", the court will not limit their review solely to the written documents. They are duty bound to listen to and consider the oral testimony of all witnesses in the transaction as well as to look to all of the surrounding facts and circumstances in determining what actually happened (unfortunately for the homeowner in this case, the trial judge apparently disregarded this legal principle and ruled incorrectly against him; fortunately for the homeowner, however, he had an attorney who was prepared to appeal the incorrect decision to a state appeals court which did, in fact, reverse the lower court decision).

To read the entire Sun-Sentinel article by Ian Katz, see:

Facing foreclosure? Beware of 'rescue firms' offering to help you

Click here for the prior post referencing Guest v. Claycomb.

Click here for a prior post of a foreclosure rescue operator who violated Federal Truth In Lending and state usury law.

Click here to search for other blog posts on equitable mortgages on this blog.

(revised 1-26-07)

Wednesday, January 24, 2007

Minneapolis Real Estate Agent Steals I.D., Buys 15 Properties

The Hennepin County attorney's office on Monday filed criminal charges against a Minneapolis area real estate agent alleging that she used the identities of five people she'd met to secure about $3 million in housing loans for 15 metro-area properties, according to a report by the (Minneapolis - St. Paul) Star Tribune, reported at StarTribune.com.

According to an investigative aide for the Eden Prairie Police Department who worked the case, in one deal, the "equity that a grandmother had built up in her north Minneapolis home [ended up in the suspect's] husband's bank account."

Reportedly, one victim, who was new to the area and wanted to buy a home, was offered assistance by the suspect, whom she had met at her local church.

To read more, see Realtor used stolen IDs to get loans, charges say
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British Government Using Civil Forfeiture In Pursuit Of Mortgage Fraudsters

This story involves a British government freeze of assets with a value of 11.8 million British pounds following a Property Freezing Order issued by their High Court as part of an ongoing investigation into a large scale mortgage fraud and money laundering operation. The British government, through their recently created (2002) Assets Recovery Agency ("ARA"), alleges that 77 properties have been funded by the proceeds of financial crime and used to launder money. The equity value of the property is estimated at 4.7 million British pounds, and consists largely of rental homes & flats.

Editor's Note:

In this story, it appears that the British government, through ARA, is seeking civil recovery of the proceeds of unlawful activity (mortgage fraud & money laundering) by an action in the British High Court without actually arresting and charging anybody with crimes (as of now, anyway). (If I'm not mistaken, I think that U.S. Federal law enforcement authorities (and possibly even state law enforcement authorities) also have the power to initiate civil actions to seek recovery of the proceeds of unlawful activity in the U.S.).

Reportedly, "[ARA] can also issue tax assessments where there are reasonable grounds to suspect that there is taxable income, gain or profit from criminal conduct" (I think the Internal Revenue Service as well as state taxing authorities can do that in the U.S.).

On January 11, 2007, the British Government has laid out a proposal before the British Parliament requesting, among other things, an extension to prosecutors of the power to launch civil recovery action under the British Proceeds of Crime Act 2002 (the law that created ARA). This proposal, the Written Ministerial Statement, can be viewed here.

(I don't have a clue whether local county prosecutors in the U.S. can initiate civil actions against suspected mortgage fraud scammers and money launderers to recover assets acquired through unlawful activity. If there are any local prosecutors out there who can shed some light on this as it relates to their District Attorney's / State Attorney's office, click "Comments" below and drop me a line.)

While the British are apparently doing it, I can't recall having seen anything in the U.S. where Federal or State authorities have used civil actions to go after mortgage fraud (outside of foreclosure rescue situations). It seems to me that, at a minimum, the Internal Revenue Service can always investigate the "cash back" fraudsters and the "flippers" to see that they've paid the proper amount of income taxes on any fraud-tainted proceeds they received from those deals (and obviously, prosecute them if they haven't).

Put another way, if Federal & State law enforcement authorities are having a tough time prosecuting all the mortgage fraud complaints that they're getting (with the labor intensive criminal investigations that go along with that), it may be that prosecuting some of the alleged scammers (the ones who have actually accumulated some wealth from their unlawful activities) for failure to pay Federal & State income taxes on the proceeds of their fraud may be an easier prosecution (the government successfully used this approach against famous gangster Al Capone, after unsuccessfully prosecuting him on racketeering charges).

Further, it seems to me that the threat of criminal tax prosecution can be used to "squeeze", or otherwise "persuade", one or more members of organized mortgage fraud groups to cooperate in a criminal investigation by "explaining" how the ringleaders conducted their operations, thereby making the prosecutions of the frauds themselves easier.

To read more on the British Government's use of civil recovery actions to attack mortgage fraud and money laundering operations, see:

ARA freezes #11.8 million of property in Manchester
Manchester Property Portfolio at Heart of Fraud Scandal
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Tuesday, January 23, 2007

Recent Mortgage Fraud Links From Around The Country

The following links are to recent stories involving home flipping, loan flipping, and a "Double HUD" scheme.

New Orleans, Louisiana
2nd man guilty in house scam (1-20-07)
(HUD was left stuck with defaulted loan)

Kansas City, Missouri
Investor’s fraud spurs lawsuit (1-20-07)
(California man claims he was a victim of Brent Barber’s property flipping)

Cinncinati, Ohio
Thousands face loss of homes (1-22-07)
(Rash of foreclosures stirs debate on blame)

Washington, D.C. (District of Columbia)
Originator Gets 24 Year Sentence in $5.2 Million Fraud Conspiracy (12-27-06)

Chattanooga, Tennessee
Prosecutor Says Wilkins Got Cash From "Double HUD" Scheme (1-22-07)
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Two Former Pro Athletes Testify In Atlanta "Flipping" Trial

An ex-NBA player and an ex-NFL player have testified on behalf of the prosecution in an ongoing mortgage fraud trial in Atlanta Federal Court, according to an article in Daily Report reported at DailyReportOnline.com. Both have testified that their dealings with one of the defendants left them a total of $350,000 lighter in the wallet.

(My January 17 post links to an article announcing the beginning of this trial.)

To read more, see:

Athletes caught up in mortgage fraud case (Two testify that deals with defendant Phil Hill cost a total of $350,000) (link no longer available)

Go here for other posts on the Phillip E. Hill property flipping operation.

Houston DA Indicts 8 In Alleged Scam Involving 300 Homes Worth Over $40 Million

The Harris County District Attorney's Office has announced the indictment of eight Houston-area individuals in connection with alleged mortgage fraud that entangled 300 homes worth more than $40 million.

An article in the Houston Chronicle, reported at chron.com, reports that, according to authorities, "[n]ot all of the individuals indicted on felony theft charges worked together, but one common escrow agent was involved in all the transactions."

To read more, see:

Eight indicted in mortgage cases
(Officials say inflating loan amounts one aspect of schemes)
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Wahington Couple Victimized By Family Friend; Mortgage Forgery Involved

An elderly Ridgefield, Washington couple was financially victimized by a family friend whom they had taken into their home and treated like a member of the family. The theft, estimated at more than $125,000, included a forgery of their name to obtain a home equity line of credit on the couple's farm.

The scam artist is scheduled to appear in court tomorrow (January 24) and plead guilty to identity theft, forgery and first degree theft and is looking at a 15 month prison sentence.

To read more, see Sparky's instincts were spot on, reported by The Oregonian, at OregonLive.com.
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Arizona Lawmaker Introduces Legislation To Aid Prosecutors In Pursuing Mortgage Fraudsters

An Arizona state senator introduced Senate bill 1221 yesterday in the Arizona legislature, which would reportedly make it easier for state prosecutors to prosecute mortgage fraud in Arizona, according to this article in The Arizona Republic, reported at azcentral.com.

Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, "[s]aid her agency was deluged with calls Monday from people reporting cash-back deals and other potential mortgage fraud" in response to Sunday's story in The Republic (which I posted on here).

According to the article, "Sunday's ... story also struck a cord with people in the real estate industry and homeowners across the Valley as more than 350 people e-mailed or phoned with concerns or accounts of deals they thought were fishy. [...] Dozens of people provided details on cash-back deals or sales that suggested cash-back pricing. Most asked to remain anonymous."

Complaints or concerns about cash-back deals can be filed with the Arizona Department of Financial Institutions and the Arizona Department of Real Estate.

The article also contains links to the following four local Channel 12 video reports on "cash back" mortgage fraud sweeping Arizona (which I posted on Sunday):

  • How the cash-back deals work
  • How the deals affect you the consumer
  • Cracking down on the fraudulent scheme
  • 12 News: Arizona lawmakers looking to punish those involved in mortgage fraud

See related article reported by the Arizona Daily Star at azstarnet.com:

(revised 1-23-07, 6:46 a.m.)

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Monday, January 22, 2007

New York Home Equity Theft Prevention Act - Title Insurance Issues

(revised 8-11-07)

Attorney Marvin Bagwell, Esq., of United General Title Insurance Company (a subsidiary of First American Title Insurance Company) has written this Title Advisory on the NYS Home Equity Theft Prevention Act (made available online by Benchmark Title Agency, LLC).

This article offers a brief discussion of four features that have an immediate impact on title insurance underwriters doing business in New York. The article is written for industry professionals, so if you are in the title insurance industry or legal counsel for mortgage lenders doing business in New York, you might find this information helpful.

Included in the article is a copy of the standard notice "Help For Homeowners In Foreclosure" now required (as of February 1, 2007) to be served on homeowners in foreclosure when initiating a foreclosure action, and an affidavit required when an "exempt equity purchaser" is acquiring title from an "equity seller" in foreclosure.
For the full article, see Title Advisory on the NYS Home Equity Theft Prevention Act

For other articles on the Home EquityTheft Prevention Act, see:

To obtain a copy of the New York Home Equity Theft Prevention Act, please refer to my January 4, 2007 post and my January 12, 2007 post.

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Two South Bend Retirees Duped Into Flipping Scam, Class Action Lawsuit A Possibility

Two Indiana retirees, in separate cases, filed lawsuits against an alleged home flipping group, who operated a local Century 21 real estate brokerage franchise, in Saint Joseph County courts alleging mortgage fraud, according to a story reported at SouthBendTribune.com.

In the first case, the victim ended up owning twelve houses that were worth considerably less than wht he paid for them. A former office manager for the group engaged in the flipping deals came forward in this case and, in effect, acted as a whistleblower, as she filed an affidavit (details in the article) in the victim's lawsuit outlining exactly how the flipping operators conducted their activities. This case ultimately resulted in a confidential, out of court settlement, according to attorney Lee Korzan, who represented the victim.

In the second case, the victim was having trouble selling her home when she was approached by two members of the group with an offer to buy the house. The bottom line in this case was that the house became the subject of a "property flip" where the house was sold for more than double the asking price. Further, while the victim only received the lower price that she originally agreed to, she got stuck with an IRS 1099 form reflecting that she received the entire sale price of the "flip."

Because the victim in the second case learned that others have been similarly scammed by the same group, her South Bend attorney, Douglas Small, has reportedly indicated that he will be seeking class action status for his client's lawsuit (thereby enabling similarly situated victims to join the lawsuit). In this regard, Small may be seeking to have the court force the home flipping group to "provide him copies of all sales transactions they have handled, and he will use those documents to identify other potential victims."

The article also reports on the story of a third victim of the group, who ended up buying three homes worth less than they were worth.

Reportedly, the flipping operation involved:
  • recruiting "investors" with satisfactory credit scores,
  • phony appraisals,
  • intimidating employees to have mortgages placed in their names,
  • fabricating documents reflecting false incomes and "phantom" employers for those applying for the mortgage loans,
  • fictitious repair invoices from home repair companies that existed only on paper,
  • failing to provide the "investors" with copies of the closing documents,
  • promises of help finding tenants paying enough rent to cover mortgage payments.

To read the entire story (which is loaded with details) and is Part 2 of a South Bend Tribune story I posted on yesterday, see:

Whistle-blower backs alleged victims' claims of mortgage fraud, reported at SouthBendTribune.com.

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Sunday, January 21, 2007

South Bend Man Lured Into Mortgage Scam, Left "Holding The Bag"

A South Bend, Indiana man, lured by the prospect of owning many rental properties without the need for any downpayment while receiving "cash back at closing", and by promises that tenant rentals would cover the mortgage payments, now finds himself mired in over $1 million of debt and the owner of 14 properties, according to a report in the South Bend Tribune.

According to the story, the man, an African immigrant, "is one of a growing number of local people, including other African immigrants, who say in interviews and lawsuits that they have been victimized by mortgage fraud scams" operated by one local alleged scam group.

The story goes on to say that "The Tribune contacted several other African immigrants who live in South Bend and said they had been defrauded by the Shenemans, but they declined to be identified -- either out of embarrassment or because they fear retribution of some kind."

Attorney Lee Korzan is representing the man and another victimized immigrant in civil lawsuits brought against the alleged scam group. To date, law enforcement authorities have made no arrests of the defendants named in the ongoing civil cases.

To read the whole story, reported at SouthBendTribune.com, see

Mortgage maelstrom
(Scheme appears to target African immigrants)
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"Cash Back" Real Estate Scams Sweeping Across Arizona

A wave of mortgage fraud known as "cash back" deals is rippling through Arizona. The fraud involves getting phony appraisals which falsely represent the value of a home, obtaining a mortgage for more than the home is worth and pocketing the extra money in cash.

Whether it's organized groups of speculators that have bought multiple homes this way or individual deals done by amateurs, this type of mortgage fraud has become a concern for Arizona regulators. Reportedly, in one neighborhood, a group of buyers has been selling and reselling homes to one another.

Calls from homeowners, real estate agents and lenders asking if the "cash back" deals are legal are increasing every month and now come in every day, according to Felecia Rotellini, the head of the Arizona Department of Financial Institutions. She recently hired two consumer complaint investigators and plans to devote the bulk of her agency's resources to investigating mortgage fraud.

In November, Rotellini organized a mortgage fraud task force that includes the Arizona Department of Real Estate, Arizona Housing Department, FBI, Housing and Urban Development, IRS and State Board of Appraisers. They plan to share information and collaborate on cases. Reportedly, local police departments will also be working with the new task force.

To read the entire story, see Valley fighting mortgage fraud wave, reported in The Arizona Republic at azcentral.com. You can also find links to the following series of Channel 12 video reports:

  • How the cash-back deals work
  • How the deals affect you the consumer
  • Cracking down on the fraudulent scheme

Click below to read other mortgage fraud articles published this week by The Arizona Republic:

Saturday, January 20, 2007

California Statutes Regulating Foreclosure Rescue & Equity Skimming

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California has two statutes, both passed in 1979, that regulate home sale transactions involving homeowners facing foreclosure, investors purchasing from these financially strapped homeowners, and mortgage foreclosure consultants.

1) California's Home Equity Sales Contract Act can be found at Section 1695 through Section 1695.17 of the California Civil Code.

2) California's Mortgage Foreclosure Consultants Act can be found at Section 2945 through Sction 2945.11 of the California Civil Code.

In addition, California also has a statute prohibiting rent skimming (equity skimming) and can be found at Section 890 through Section 894 of the California Civil Code.

Click here to view the entire hyperlinked Table of Contents of the California Civil Code.
September 27, 2008 Addendum:

Northern California Woman's Unwitting Sale Of Home Leads To Lawsuit

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In this July, 2006 article, a disabled Antioch woman who had fallen behind in her mortgage payments sought the advice of her church's pastor, whom she had known for 10 years. According to a lawsuit that she ultimately filed, she alleged that the pastor referred her to a fellow church parishioner to assist with a refinancing and, within a month after she signed the legal documents involved in the transaction, both the man arranging the transaction and another party (who claimed to be the new owner of the woman's home) claimed that she was no longer the owner and demanded the house keys and rent for being in the home.

This article points out that the homeowner in this case
  • "is luckier than some because she was able to get legal help. Through the Association of Community Organizations for Reform Now ["ACORN"], she was put in touch with the Oakland-based housing advocacy group, Housing and Economics Rights Advocates, which works with the law firm Morgan Miller Blair in Walnut Creek. The law firm took [the homeowner's] case on a pro-bono basis."

In the civil lawsuit, the homeowner (represented by attorney Joshua Cohen) alleged violations of California's Home Equity Sales Contract Act, the Mortgage Foreclosure Consultants Act, fraud, civil conspiracy to commit fraud and unfair business practices, intentional infliction of emotional distress, and undue influence. The defendants in this case include the pastor, the man arranging the transaction, the purported new owner, and others.

To read more, click below for the article, as reported in the East Bay Business Times:

Mortgage fraud cases multiply, hit more homeowners
Homeowner sues pastor, others

For those seeking legal assistance or representation in California, see my blog post immediately preceeding this one.

Editor's Note:

As a personal observation, in cases such as this one (and the one in the blog post preceeding this one), where a victimized homeowner retains possession of the home after a purported sale, this possession under the law generally imparts what experienced real estate lawyers refer to as "notice to the world" that the person in possession of the premises may have a legal interest in the home (whether this "notice" is considered to be "actual notice", "constructive notice", or "inquiry notice" under California law, I welcome input from any California real estate attorneys).

This point may be significant to the victimized homeowner because if, after litigation, the homeowner is successful in voiding the sale, and the holders of any subsequent intervening interests (in the above case, the purported interests of the new buyer and the mortgage company that financed the new purchase) are deemed to have had this "notice to the world", it seems to me that the homeowner should be entitled to get the home back free from any claims of the new buyer or bank. (Being deemed as being "on notice" may possibly "disqualify" the new buyer or mortgage company of the legal status of being a "bona fide purchaser for value, and without notice.") For any victimized homeowners and others wanting more information on this point, seek out a competent, experienced real estate attorney in your home state.

Should this be the case, then the new buyer and the bank or mortgage company financing the purchase would end up "holding the bag". However, if they each obtained a title insurance policy to protect their interests as part of the purchase, then it seems to me that they may have a "title claim" to submit to the title insurance company issuing the policy (I wonder how title insurance companies are dealing with issuing title policies in foreclosure rescue situations. If anyone knows of any cases or articles addressing the ramifications to the title insurance industry in connection with foreclosure rescue issues, please drop me a line by clicking "Comments" below).

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Southern California Woman Alleged Victim Of Home Theft, Mortgage Broker Arrested

In this May, 2006 story, a financially distressed mother of two seeking to refinance her defaulted mortgage was reportedly convinced by a local mortgage broker to sign over her home to the broker's father to take advantage of his better credit rating to obtain a refinancing of her existing mortgage. Unbeknownst to the homeowner, the property was subsequently sold, with her name allegedly forged on documents authorizing the sale proceeds to be sent to someone unknown to her.

The broker was subsequently arrested on various charges, including forgery, after an investigation by Riverside County authorities.

Denise Meenan, a consumer attorney employed by the Riverside office of Inland Counties Legal Services, which serves San Bernardino and Riverside Counties with free legal assistance to the elderly and to low-income households, was quoted as believing that most foreclosure investors "are basically putting the nail in the coffin as far as taking the last bit of a homeowner's equity."

Private attorney Tim Liebaert, representing the victim in this story in a civil suit to get her house and equity back, said in the past year he has filed five cases on behalf of victims of foreclosure fraud.

To read more, click below for the following article in The Press Enterprise at pe.com:

False Hopes
Inland homeowners facing foreclosure encounter scams under guise of refinancing

Click here to find consumer protection attorneys throughout California

Click here to find low cost / no cost legal self help and possible attorney representation to low income, elderly, and disabled Californians
(revised 1-29-07)
(revised 4-10-07)
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Ex Church Youth Pastor Gets 46 Months In Flipping Scam

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A New York man was sentenced to 46 months in prison and ordered to pay more than $460,000 in restitution after being convicted of Federal charges for his part in an illegal property flipping scam. The properties were located in Westchester County and New York City. The scam involved filing false mortgage loan applications with lending companies, and filing other types of false information and documents, like fake W2 forms and fake payroll stubs, which falsely reflected inflated income amounts needed by borrowers to qualify for the loans.

To read more, see Ex-church youth pastor, convicted in mortgage fraud scheme, going to prison, reported at EmpireStateNews.net.
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Friday, January 19, 2007

Indianapolis Cop Gets 57 Months In Mortgage Scam

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An Indianapolis cop was sentenced in an Indiana Federal Court Wednesday to 57 months in prison for his role in a mortgage fraud scheme. This conviction, as well as 57 others, is a result of a probe by a little-known federal task force set up in 2002 to look into Indianapolis' long rash of real estate scams.

To read more, see Cop gets 57 months for fraud, as reported at IndyStar.com (The Indianapolis Star).

Former Indianapolis patrolman gets 57 months for fraud, report by WAVE Channel 3

Former Indianapolis patrolman gets 57 months for fraud, Associated Press wire report at The News-Sentinel at FortWayne.com.

revised 1-19-07 (4:11 p.m.)

"Shotgunning"

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"Shotgunning" is the term used to identify one of the latest real estate frauds that one industry insider refers to as "the fraud of the year." This scam comes in two forms. To read more, see How mortgage scams snare unsuspecting sellers, reported at marketwatch.com.
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Another Land Flipper Sentenced To Federal Prison

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A Massachusetts man was sentenced yesterday in federal court in Sprigfield, Massachusetts for his role in a land flipping and mortgage fraud scam. According to prosecutors, the scam involved drawing in unwitting buyers with realty investment opportunities without the need for any downpayments, promising them money back at the real estate closing, and generating false documentation to induce mortgage lenders to approve loans. Also involved in the conspiracy were real estate appraisers who provided false property appraisals to support the loan amounts for the artificially inflated property values, and attorneys who generated false and fraudulent real estate closing documentation to facilitate and conceal the fraud.

To read more, see Wilbraham Man Sentenced to Prison for Role in Multi-Million Dollar Mortgage Fraud Reports U.S. Attorney, as reported at prnewswire.com.

For a previous report on this story, click here for Real estate fraud case nets prison, confinement.
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